Pilot project to cut power production cost will run till May

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Published: March 27, 2020 4:15:35 AM

The scheme was put to action after the power ministry in August 2018 had allowed power generation firms to supply less expensive power from their preferred plants to discoms, even if power purchase agreements (PPAs) are linked to other (more expensive) plants.

The pilot scheme reduced fuel costs by Rs 845 crore in April–December 2019.

The government’s pilot scheme to reduce power generation cost, which saved about Rs 2.75 crore per day in the April-December 2019 period, has been allowed to run till May 31, 2020. The pilot scheme, Security Constrained Economic Despatch (SCED), currently involves 52 coal-based power plants with a cumulative capacity of 58,060 MW, and their tariffs are decided on the ‘cost-plus’ basis (no competitive bidding) by the CERC. While most participating plants in the pilot belong to state-run NTPC, few private power units such as Reliance Power’s Sasan unit and Tata Power’s Mundra station are also part of it.

The pilot scheme reduced fuel costs by Rs 845 crore in April–December 2019. Though the weighted average variable cost comes to Rs 1.89/unit, the lowest cost can be Rs 1.12/unit and the highest can go up to Rs 8.15/unit. The total power generating cost in this period was about Rs 54,000 crore. Cost savings made from this process are to be shared between discoms and generation companies.

The Central Electricity Regulatory Commission (CERC) has extended the implementation period of the scheme to allow the Power System Operation Corporation (Posoco), the national load despatch centre, to run the scheme designed to explore the possibility of minimising costs without major structural changes in the existing system. The electricity regulator in September 2019 had allowed the pilot to run till FY20-end.

The scheme was put to action after the power ministry in August 2018 had allowed power generation firms to supply less expensive power from their preferred plants to discoms, even if power purchase agreements (PPAs) are linked to other (more expensive) plants. By removing the PPA hurdle, generators are allowed to supply power from plants where fuel costs (variable cost) are lower.

While placing requisition for electricity, each discom generally follows a ‘merit-order’ (plant with lowest variable-cost gets top priority) from its own portfolio of contracts. However, under the prevalent system, capacities of cheaper power stations remain unutilised, while power from relatively costlier stations are despatched, because discoms cannot schedule power from power plants with which they did not have contractual arrangements.

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